Your Home’s Destruction Is Not My Top Priority
The Wall Street Journal recently ran an article titled, “Americans Are Bailing on Their Home Insurance – Some homeowners who are skipping coverage say they can no longer afford rising premiums.”
It is understandable that some homeowners are persuaded to skip coverage due to rising (some may say soaring) premiums. However, it is important to consider the potential risks and consequences associated with that decision. As a risk manager, my primary concern is to protect homeowners from unexpected events that could lead to financial devastation – and I’m not talking about losing their home!
The article discusses how rising building materials costs, supply chain issues, and skilled labor shortages have come together to form the “perfect storm” for insurance companies. Information that at this point is old news to the average reader. They also point out that skipping home insurance is only an option for those without a mortgage. Mortgage lenders require homeowners to maintain adequate insurance coverage as a condition of their loan agreement. If homeowners decide to skip coverage, they may violate their mortgage terms, potentially leading to penalties or more expensive forced placement coverage. This is where the article falls short of full disclosure reporting and misleads the population most in need of a homeowner’s policy – those facing catastrophic exposures by not having one in place.
Almost half the pages of the typical homeowner’s policy are dedicated to the liability protection provided. This coverage safeguards homeowners from legal and financial consequences of the homeowner causing (or being accused of causing) bodily injury or property damage to a third party who, in turn, files a lawsuit for injuries. Without liability protection, homeowners may be forced to pay legal fees, medical expenses, and potential settlements out of pocket. Think dog bite or a guest tripping on a loose stair tread as minor examples. As disastrous as a fire or water damage is to a homeowner not insured for those losses, a liability suit could easily bankrupt a family.
The person who recently paid off his or her mortgage is typically closer to retirement and has amassed assets to do just that. They are at their financially most vulnerable with little time left to recover from a successful lawsuit and the associated defense costs against them.
While rising premiums are a valid concern for homeowners, completely bailing on home insurance is probably not a prudent decision. The potential risks and financial consequences of not having coverage far outweigh the short-term cost savings. Homeowners must assess their individual needs and explore alternative cost-saving measures rather than leaving themselves vulnerable to unforeseen events that could have devastating financial implications.